Subprime mortgage lenders should diversify only if they are to survive ups and downs in the mortgage business.

If you were oyster fishermen, what would you do with pearls, you can find on the street? You want to find a buyer and sell. Pearl May is not your specialty, but also sell them relatively easy and allows additional revenue to pay for gas and maintenance on your boat.

* The majority of sub-prime lenders know, I did not work like that. Recently, I phoned the leading subprime mortgage lenders. I said I had perfect credit and want to refinance the money. The lender told me I would probably want to talk to other companies. "The result is that the creditors have lost a client.

* There are many reasons why the sub-prime lenders for customers in accordance with the "jewels". But they will be more profitable if they do? Are they on this model?

* I had the pleasure of working with some delay, a big subprime mortgage lenders, as well as some survivors. Now that most of them are either dead or converted by the acquisition? This, finally, ensure exchange of experiences and help some of the survivors prepare for the transition years. This article is not available for stories, or even analyze sub-prime loans. I hope simply to shed light on trends in the sub-prime retail marketing programs.

Once upon a time

Subprime heyday began in the early 1980's, when interest rates are recovered from the perspective of classic stagflation, which is 30 years old, fixed rate over 18 per cent in 1981 (see Figure 1).

In the early 1990's subprime growing so much that the creditors are able to choose their customers. Cancel less lucrative "A" helps customers with sub-prime lenders have limited capital and / or high cost of capital to concentrate its resources on high-yield subprime customers.

Loan officers and processors have been busy as well. He makes an impression on me in 1996, when I heard some loan officers to a large lender to compare notes, said: "I would not even a loan to my mother for less than 2 points." Those days ended sharply in the late 1990's subprime market has been hit with a liquidity crunch began with the Asian currency crisis of 1997 and be completed by the Russian debt default in 1998. Subprime mortgage lenders, large and small went on, although she is in danger, niche products, such as 125 percent ready to value (LTV), home loans.

Assets Data

Financial companies like Prospect Heights, Illinois-based Household Finance Corporation (a subsidiary of International House), Dallas-based Associates First Capital Corporation (a subsidiary of Citigroup Inc.) and Prospect Heights, Illinois-Services Corporation (a subsidiary of Household International) has a large database of existing customers that they are for sale and the modernization program. unsecured personal loans to customers often equity in their homes and into the less risky home loans. Private credit card customers who are often unaware that they already have an account with the company, with the condition that the donor with rich information about their use of credit and purchasing behavior. Its subsidiaries, including credit-card division, suggested that the huge databases, the vast quantities of information product purchase.

Marketing for these clients was easy and profitable. Among the banking companies, such as Chicago, Bank One Corporation has its subprime division in part to use the database resources. Wilmington, Delaware - First USA (a subsidiary of Bank One Corporation) assets were added to the database in Indianapolis Bank One Financial Services (BOFS) marketing program shortly after the First USA was acquired by Bank One in 1997. With clients from more than 40 million databases and other assets acquired during the economy, the USA is a first showed that a substantial contribution to BOFS marketing programs.

Most sub-prime lender does not benefit from the assets. Thus, smaller or less established lenders and brokers have used aggressive, proactive marketing to grow their business. Direct mail, telemarketing, direct response television, Internet and advertising in leading newspapers of the most popular. According to sources within the company, more than 25 percent of West Sacramento, CA - In Indeed, money from the store (a subsidiary of First Union Corporation) media reactions came from the "A" credit actors. This figure was much higher before the changes were advertising in 1993, that the response team. Despite advertising on radio and television, where most of the audience could be described as the type of line customers, and where many of the speakers are donors, such as the Parsippany, New Jersey - on the basis of D "champion mortgage on, Inc. (a subsidiary KEYCORP) And money from the store were able to easily expand their business activities to electronic marketing.